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Following the Fed rate hike of 25bps and signaling of a more accelerated unwinding of bond purchases, US Bankcorp, Deutsch Bank, Wells Fargo, and Regions have raised their prime rate from 4 to 4.25%. The prime rate is the rate at which banks lend to creditworthy customers, and often is used as a benchmark for other loans such as loans for credit cards or small businesses.
The Federal Reserve does not directly influence the prime rate, but prime rates tend to closely correlate with changes in rates announced by the central bank. While the Fed's interest rate has limited influence on other typical loans like auto loans or college tuition, the increased interest rate directly influences short-term borrowing costs for banks. An increase in short-term borrowing costs can lead to banks slightly increasing other rates such as credit cards, home equity loans and credit lines.
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